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Liquidity Meaning

The ease with which an asset can be converted into cash (or another asset) without affecting its market price. It is the lifeblood of any financial market.

Liquidity is provided by "Market Makers" who place buy and sell orders on the book, ensuring there is always someone to trade with. In a "Liquid" asset, the Bid-Ask Spread is small, and the Depth of the order book is high.

In an "Illiquid" asset, you might have to pay a 10% "premium" just to buy a small amount because there are so few sellers. Liquidity is not just about volume; it’s about "Availability." You could have $1 billion in trading volume, but if it all happens in one second and then disappears, the market is not truly liquid.

Consistent, deep liquidity is what allows large players like pension funds and corporations to use digital assets.

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